ONE in 10 homeowners was in negative equity during the first quarter of the year, the Bank of England said yesterday.

The Bank estimates that between 7% and 11% of homeowners owed more to their lender than their property was worth during the first quarter, the equivalent of between 700,000 and 1.1 million households.

In addition, around 200,000 buy-to-let investors are also estimated to have owed more on their mortgage than their property was worth.

It is thought some of these may also be in negative equity on their own home or on more than one investment property.

The research said the overall number of people in negative equity during the first quarter was similar to those who suffered from the problem in the mid-1990s, during the last housing market correction.

Being in negative equity can increase the risk of a borrower defaulting on their mortgage as they do not have capital in their home to fall back on if they run into difficulties.

The Bank said house prices had fallen by around 20% between the autumn of 2007 and the spring of 2009, the largest fall on record.

But despite the steep drop, it found that the majority of homeowners had large equitycushions, while for others the total value of negative equity was relatively small.

In Wales, figures from the Council of Mortgage Lenders (CML) show around 6% of homeowners who have taken out a mortgage since 2005 are in negative equity.

Mr Morgan said: “It’s also going to have a knock-on effect for the speed of the economic recovery, because that is held back until the housing market leads the way.”

The research suggested that between 73% and 78% of households who were in negative equity faced a shortfall of less than £15,000, and between 56% and 65% had one of less than £10,000.

At the same time, three-quarters of all households with a mortgage owed less than 75% of their home’s value to their lender during the first quarter.

North West Wales estate agent Dafydd Hardy said there are growing signs of families struggling with mortgage repayments.

Mr Hardy also believes the furore over MPs’ expenses and the possibility of an early election has created an element of instability that could hold back economic recovery.

He said: “The level of repossessions has increased slightly, but it’s not a torrent by any means.”

Mr Hardy said the “dead cat bounce” theory was the best way to describe the state of the recovery.

This means the economic picture has improved slightly after a big fall, but a significant spring is unlikely.

Shelter Cymru director John Puzey said most homeowners now have fixed-interest rate mortgages and there is a danger that when these come up for renewal banks will refuse to offer loans.

He said: “Treating housing as a commodity, as we have done over many years, means you get caught in the boom and bust scenario.

“We need a range of housing options that allow people to lend responsibly and affordably, which sometimes could mean part-renting and part-owning if that suits the household.”

The report also pointed out that the overall financial position of a household was important when assessing the impact of negative equity.

The issue was less of a concern for people who had additional assets, such as savings or investments, while it was more of a problem for people who had additional debt.

It added that rising levels of negative equity could also lead to a reduced supply of credit to the economy as a whole, as it could increase the losses that lenders incur if borrowers default on their mortgage.

This in turn can make banks less willing or less able to supply credit to households and firms.